Subject: Trading - Pink Sheet Stocks

Last-Revised: 2 Sep 1999
Contributed-By: Art Kamlet (artkamlet at aol.com)

A company whose shares are traded on the so-called "pink sheets" is commonly one that does not meet the minimal criteria for capitalization and number of shareholders that are required by the NASDAQ and OTC and most exchanges to be listed there. The "pink sheet" designation is a holdover from the days when the quotes for these stocks were printed on pink paper. "Pink Sheet" stocks have both advantages and disadvantages.

Disadvantages:

1. Thinly traded. Can make it tough (and expensive) to buy or sell shares.
2. Bid/Ask spreads tend to be pretty steep. So if you bought today the stock might have to go up 40-80% before you'd make money.
3. Market makers may be limited. Much discussion has taken place in this group about the effect of a limited number of market makers on thinly traded stocks. (They are the ones who are really going to profit).
4. Can be tough to follow. Very little coverage by analysts and papers.

Advantages:

1. Normally low priced. Buying a few hundred share shouldn't cost a lot.
2. Many companies list in the "Pink Sheets" as a first step to getting listed on the National Market. This alone can result in some price appreciation, as it may attract buyers that were previously wary.

In other words, there are plenty of risks for the possible reward, but aren't there always?

The National Quotation Bureau maintains the list of pink-sheet stocks. Their site gives the history of the pink-sheet listing service and information about real-time quotes for OTC issues.
http://www.nqb.com/

Online quotes are offered by the National Quotation Bureau for registered users only.
http://www.otcquote.com/

Previous article is Trading: Day, GTC, Limit, and.. Next article is Trading: Price Improvement

Category is Trading Index of all articles